British Airways (BA) and Iberia of Spain reached preliminary agreement late on Thursday on a US$7 billion merger to create one of Europe’s biggest airlines, ending months of negotiations.
The new airline would have 419 aircraft and fly to 205 destinations, after a merger aimed at better competing in the industry hit hard by the global recession, the pair said in a joint statement.
“The merger will create a strong European airline well able to compete in the 21st century,” BA chief executive Willie Walsh said.
“Both airlines will retain their brands and heritage while achieving significant synergies as a combined force,” he said.
Both loss-making airlines held separate board meeting talks throughout Thursday on a merger that would create a European aviation giant to rival Air France-KLM and Lufthansa.
The deal would create Europe’s second-biggest airline by stock market capitalization of some 4.9 billion euros (US$7.2 billion) and third-biggest by income, with around 60 million passengers per year, analysts have said. British Airways will hold 55 percent of the new company, while Iberia will hold 45 percent, the statement said.
The merger would save 400 million euros a year, the statement said, prompting British newspapers yesterday to warn of further job losses at the two airlines.
The Times said cuts were likely at existing head offices in London and Madrid, in maintenance facilities and the merged sales forces. A BA spokeswoman could not rule out job cuts, but said it was likely that most savings would be made through sharing services like IT.
Walsh will be chief executive and Iberia chairman Antonio Vazquez will be chairman of the new company to be based in London and listed on the London Stock Exchange, the statement said.
Analysts said passengers were unlikely to notice much difference initially, with the merger to be finalized by the end of next year.
Vazquez hailed the agreement, saying they were “laying the foundations of what will be one of the most important airlines in the world, a real global airline.”
Both airlines have suffered heavy losses because of plunging demand for air travel in the fierce global economic downturn — but it was unclear whether a merger would remedy the situation, analysts said.
“Both BA and Iberia have got their own problems. Both are loss-making and both have industrial issues to deal with,” said John Strickland, aviation analyst at JLS Consulting. “If they can get this in place for when the economy begins its recovery in 2010 or maybe 2011 then it will benefit both.”
The two airlines are seeking to merge at a time when the industry has been badly hit by a slump in passenger and cargo traffic.
BA last week announced a new round of job cuts and posted a loss of £217 million (US$361 million) in the six months to Sept. 30, compared with a loss of £49 million during the same period of last year.
Iberia Friday reported a third-quarter loss of 16.4 million euros, a sharp turnaround from the same period last year.
In the third-quarter of last year, Iberia posted profits of 30.4 million euros.
The airline had plunged into the red in the second quarter of this year, recording a net loss of 72.8 million euros.
The merger must still be approved by the European Commission.
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